Röthig, Andreas and Semmler, Willi and Flaschel, Peter (2006):
Hedging speculation, and investment in balance-sheet triggered currency crises.
In: Darmstadt Discussion Papers in Economics, 168, Darmstadt, [Online-Edition: http://tuprints.ulb.tu-darmstadt.de/4765],
[Report]
Abstract
This paper explores the linkage between corporate risk management strategies, investment, and economic stability in an open economy with a flexible exchange rate regime. Firms use currency futures contracts to manage their exchange rate exposure – caused by balance sheet effects as in Krugman (2000) – and therefore their investments’ sensitivity to currency risk. We find that, depending on whether futures contracts are used for risk reduction (i.e., hedging) or risk taking (i.e., speculation), the implied magnitudes of recessions and booms are decreased or increased. Corporate risk management can therefore substantially affect economic stability on the macrolevel.
| Item Type: | Report |
|---|---|
| Erschienen: | 2006 |
| Creators: | Röthig, Andreas and Semmler, Willi and Flaschel, Peter |
| Title: | Hedging speculation, and investment in balance-sheet triggered currency crises |
| Language: | English |
| Abstract: | This paper explores the linkage between corporate risk management strategies, investment, and economic stability in an open economy with a flexible exchange rate regime. Firms use currency futures contracts to manage their exchange rate exposure – caused by balance sheet effects as in Krugman (2000) – and therefore their investments’ sensitivity to currency risk. We find that, depending on whether futures contracts are used for risk reduction (i.e., hedging) or risk taking (i.e., speculation), the implied magnitudes of recessions and booms are decreased or increased. Corporate risk management can therefore substantially affect economic stability on the macrolevel. |
| Series Name: | Darmstadt Discussion Papers in Economics |
| Volume: | 168 |
| Place of Publication: | Darmstadt |
| Uncontrolled Keywords: | Mundell-Fleming-Tobin model, foreign-debt financed investment, currency crises, real crises, currency futures, hedging, speculation |
| Divisions: | 01 Department of Law and Economics 01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete 01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete > Fachgebiet Makroökonomie und Finanzmärkte |
| Date Deposited: | 31 Jan 2016 21:00 |
| Official URL: | http://tuprints.ulb.tu-darmstadt.de/4765 |
| URN: | urn:nbn:de:tuda-tuprints-47659 |
| Additional Information: | JEL Classification: E32, E44, F31, F41 |
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